Liability System Incentives to Consume Excess Medical Care

It is generally accepted that some, perhaps many, claimants obtain medical care for nonexistent injuries to gain access to compensation for pain and suffering. It is also generally accepted that some, perhaps many, claimants with valid injury claims consume more health care than appropriate either because they want to increase the amount of compensation they receive for pain and suffering or because a health professional recommended that treatment. However, there has been no empirical evidence about how excessive claims, in the aggregate, affect the costs of the health care system, or to what extent such claims impose other costs on society, such as claims-handling, legal and other transaction costs, and increased prices and insurance costs. This study provides a first-order estimate of these effects. Drawing on several ICJ analyses of claiming behavior, the authors characterize the nature of the liability incentives to exaggerate medical claims and develop estimates of the total costs of the excess medical care consumed. The authors examine the rate of excess medical claiming for automobile personal injuries; estimate the amount of medical care resources consumed by all other injury liability claims; and apply to that estimate the excess claiming rate derived from the analysis of auto injuries to get an estimate of the cost of excess medical costs incurred for non-auto injuries in response to liability system incentives. These calculations are based on the critical assumption that the rate of excess claiming for non-auto injuries is about the same as it is for auto personal injuries. The authors suggest three areas in which to look for appropriate policy responses that might reduce this excess consumption of health care resources: (1) examine our auto insurance systems; (2) schedule general damages for some or all cases; and (3) change the rules governing admissibility of medical cost information in courts.