Resuscitating hospital enterprise liability.

• Author: Peters, Philip G., Jr.
• Position: Symposium: A Tribute to Professor David Fischer

1. INTRODUCTION

   No tort reform has more potential to improve the quality of medical care and to reduce the frequency of patient injuries than exclusive hospital enterprise liability. Hospital enterprise liability would make hospitals liable for all patient injuries occurring in the hospital that are the product of provider negligence, regardless of the independent contractor status of the providers. In its "exclusive" form, enterprise liability would also eliminate the personal liability of individual physicians and nurses.

   Exclusive hospital liability is also more likely than any other evenhanded tort reform to reduce the extraordinary fear and anger that the threat of malpractice liability engenders in practicing physicians. As a result, the disappearance of enterprise liability from current discussions of malpractice reform is a serious mistake.

   Medical errors are far too common. (1) Yet, medical malpractice law--the body of law intended to reduce these errors--is widely believed to have failed in its deterrent role. (2) Critics base this conclusion on three contentions. First, research studies have been unable to detect a significant deterrent effect on the frequency of medical errors. Second, physicians do not believe that providing high quality medical care will shield them from malpractice liability. As long as they believe that tort law operates this way, then the threat of tort liability is unlikely to prompt improvements in patient safety. Third, patient safety advocates regularly complain that medical malpractice law poses a serious obstacle to the reduction of medical errors because it makes physicians afraid to discuss them.

   Exclusive hospital enterprise liability has the potential to revive the dormant deterrent power of tort law. The reasons are simple. Unlike individual physicians, hospitals are experience-rated repeat players who have the vantage point and the resources needed to recognize and implement systematic improvements in the process of delivering health care. Adoption of enterprise liability would align the incentives of tort law with the goals of modern patient safety advocates who emphasize the need to shift our focus from the blaming of individual wrongdoers to the design of systems that anticipate and prevent human error. Exclusive enterprise liability would also reduce the disruption caused by the insurance cycle, spare high-risk specialists from shouldering a disproportionate share of health care's liability costs, reduce litigation costs that arise in multi-defendant lawsuits, and dampen the extraordinary anger of practicing physicians. The time has come to adopt hospital enterprise liability.

   Part I of this Article explains why existing malpractice law has failed to make patients safer. Part II then reviews the history of proposals for enterprise liability and the reasons those proposals were not adopted. Part III outlines my contention that hospital enterprise liability would revive the deterrent power of medical malpractice law. It also defends my claim that enterprise liability would align tort law with efforts of modern patient safety experts to reduce errors by focusing on system-wide improvement, rather than individual blame. Finally, it explains how this reform would advance the recommendations of health reformers who want to improve the quality and cost-effectiveness of health care by making health care systems more accountable for these outcomes. They, too, place great emphasis on hospital level accountability. Part IV then explores the many benefits that enterprise liability is likely to confer which are not related to patient safety. Part V reviews several possible weaknesses of enterprise liability. In the Conclusion, I argue that the strengths of exclusive hospital enterprise liability substantially outweigh those weaknesses.

2. THE LACK OF DETERRENCE FROM INDIVIDUAL PHYSICIAN LIABILITY

   Scholars have long lamented the failure of malpractice law to send a coherent deterrent signal to physicians. They base this conclusion on two facts. First, research studies have been unable to find any evidence that the current system of individual liability reduces the frequency of medical negligence. (3) Second, physicians do not believe that they are shielded from malpractice liability by practicing higher quality medicine. (4) As long as the recipients of the tort signal interpret it in this fashion, the threat of tort liability will not encourage safer practices.

   Despite three decades of debate and several substantial studies, no reliable evidence of malpractice law's deterrent effect has been found. (5) To some extent, the absence of confirmatory evidence may simply reflect the methodological difficulties involved in trying to detect it. Nevertheless, it is disappointing that none of the studies have found clear evidence of a beneficial effect on patient safety. (6)

   Several plausible explanations for this lack of evidence have been suggested. First, the liability insurance purchased by physicians has not traditionally been experience-rated. (7) Individual physicians simply do not have sufficient exposure to litigation to make their past experience a statistically meaningful predictor of future experience. (8) As a result, the amount they pay in premiums is not tied to the quality of care they provide; safer practice provides no concrete reward. Second, only two to three percent of patients who are injured by medical negligence bring a lawsuit. (9) This widespread underclaiming greatly dilutes the legal incentive to adopt best practices. Third, the case-by-case nature of tort law adjudication arguably fails to provide physicians with clear ex ante guidance about which clinical practices will satisfy the legal standard of care. (10) Fourth, as Tom Baker argues, the volatility in premiums introduced by the insurance cycle is likely to obscure the deterrent signal that tort law might otherwise deliver. (11) Premiums rise sharply at seemingly random moments that lack any correlation to changes in either medical error or medical claims. Good and bad physicians suffer alike. Finally, most physicians think that patients' claims are a largely random event. (12) As long as they believe that good care is no less likely than poor care to lead to a malpractice claim when the patient's outcome is bad, they are unlikely to respond to tort law in a rational way.

   Patient safety advocates have even claimed that medical malpractice law is currently an obstacle to improving patient safety. (13) They point out that modern quality improvement programs have been most effective when they stop blaming individuals within an organization for problems and, instead, design organizational processes that prevent mistakes from happening. These safer processes can only be designed when the participants are willing to openly talk about the points in the treatment process at which errors and near misses are most common. (14)

   In its exhaustive and crucial study of medical mistakes, To Err is Human, (15) the Institute of Medicine concluded that medicine would not enjoy the degree of disclosure necessary for substantial improvements in patient safety until practicing physicians were certain that their disclosures could not be used against them by tort plaintiffs. (16) Today, fear of malpractice liability stops physicians from discussing errors openly. (17) Their perception that tort liability is random also makes it hard to convince physicians that safer systems will pay off in less frequent liability. (18) As a result, important patient safety advocates, like Troyen Brennan and the Institute of Medicine, have concluded that malpractice reform is a predicate to fundamental improvements in patient safety.

   To rebut this gloomy scenario, supporters of the current civil adjudication system often point out that error rates have dropped dramatically in anesthesiology since a major patient safety initiative was instituted by leaders in the field. (19) A decade ago, a major effort to reduce the number of patient injuries caused by anesthesia was spurred by high accident rates and correspondingly high malpractice premiums. The effort produced dramatic improvements in patient safety, dropping premiums from among the highest in medicine to among the lowest. (20)

   However, the revolution in anesthesiology stands out as atypical. No other specialty has reported a similar transformation. Furthermore, it appears to have occurred when Harvard took over the purchasing of liability insurance for its physicians. After this change, physicians were no longer financially responsible for the liability costs associated with their errors. Instead, that risk was shifted to their hospital. Once it accepted those risks, it has a strong incentive to reduce the frequency of patient injuries caused by its staff. Because its anesthesia departments attracted an especially high number of claims, the hospital system began a search for safer procedures. Soon, its faculty members were researching the causes of anesthesia injury and the best ways of reducing them. Other anesthesiology researchers joined the effort and remarkable improvements in medical safety resulted. Thus, the success in anesthesiology illustrates how organizational or "enterprise" liability can spur safety improvements that simply do not occur when the system leaves every man or woman to fend for herself.

3. A BRIEF HISTORY OF HOSPITAL ENTERPRISE LIABILITY

   In most areas of commerce, a business enterprise is legally liable for the carelessness of any worker who is carrying out its activities. (21) In fact, it is rare for accident victims to sue the workers individually. That paradigm usually applies to both unskilled workers, like custodial crews, and to highly-skilled workers, like airline pilots, even though airline managers cannot realistically oversee the decisions made by pilots in the field. Thus, a shopper who slips on a broken pickle jar in the grocery store...