No Fault Regime Better Than a Negligence Rule

Conventionally, it has been assumed that people who have been injured as a result of poor medical treatment will want financial compensation. In reality, evidence suggests that an explanation, an apology and reassurance that the incident will not be repeated are more important to patients. In one study of people affected by medical injuries, 60 per cent wanted an apology, explanation or inquiry into the cause of the incident however only 11 per cent thought that financial compensation was the most appropriate remedy. [1] In medical practice there are two ways in which medical error are dealt with, a ‘no fault regime’ and a ‘negligence’ rule, both of are underpinned by the theory of tort law. It’s purpose is “to protect the interests of people in their property and persons from damage by others” [Cooter and Ulen]. Currently in the UK, the system of tort law is negligence based. A doctor will be liable if they breach their duty of care to the patient, which causes harm or damage to the patient (Hughes V Lord Advocate). This essay will evaluate the two approaches in dealing with medical error in relation to exploring an alternative approach.

Fenn et al. (2004) demonstrates the economic theory of tort law with the following graph:

Figure 1.0

Costs

Where the standard of care is observable by everyone (individuals and courts), the graph explains why the negligence system would bring socially optimal results. The total costs of accidents are represented by x + D(x) where x is equal to the cost care, and D(x) is the cost of resulting damages. The total costs of accidents are minimised at the point x*. In an idealised situation the doctors utility of wealth is adversely affected by any choice other than x*; as Fenn explains, letting u(W) be the professionals utility of wealth, his level of care solves u(W-x) if x ≥ x*;u(W-x-D(x)) if x

Fenn states that “One natural incentive against insufficient care levels is to make the person causing the harm (assuming causation can be determined) liable for the costs involved, if he fails to supply care beyond a sufficient threshold (i.e. behaves ‘negligently’)”. Therefore in the absence of any effort by the courts to place liability on injurers, the private incentive would be for the potential injurer to take no care, thus resulting in an excessive number of accidents. For efficiency, there is a requirement of making the injurer choose the socially optimal level of care, leading to the socially optimal number of accidents. One possibility is for the courts to enforce the choice of care directly by making this the legal standard of care which is owed to potential victims, called the negligence rule. Therefore negligence is defined as ‘the breach of a legal duty to take care which results in damage undesired by the defendant.’ There are three elements of negligence; duty of care, breach and causation. In order to succeed in an action in negligence the claimant must establish that a) he/she is owed a duty of care by the defendant, b) that the defendant breached the duty by failing to exercise reasonable care and c) that the breach of duty caused the claimant’s injuries and that those injuries are not too remote.

A duty of care is imposed upon the doctor once she has assumed responsibility for the patient’s care. However the existence of a duty of care within the doctor- patient relationship can usually be taken for granted. It is a well established duty situation that a doctor who made a mistake during medical treatment would attempt to argue that she did not owe her patient a duty of care. The duty will be to exercise reasonable care and skill in diagnosis, advice and treatment. Provided that the doctor committed the tort in the course of her employment, her employer (NHS trust) will be liable for her negligence. In any case presented against medical negligence, the court must be aware when the duty of care was breached. This is achieved by looking at the expected standard of care in relation to the circumstances in comparing what would have been done by asking other doctors. It is necessary to establish that the doctor, skilled in the particular speciality, did not act as a reasonably. Therefore, the standard of care expected of doctors has modified by the Bolam test (Negligence rule): the doctor will not be found to have acted negligently if she acted in accordance with a practice accepted as proper by a body of medical opinion and provided that the opinion is capable of withstanding logical analysis (Bolithio) The Bolam v Friern Hospital Management Committee established that ‘a doctor is not negligent if he is acting in accordance with such a practice merely because there is a body of opinion that takes a contrary view. At the same time this does not mean that a medical man can obstinately and pig headedly carry on with the same old techniques if it has been proved to be contrary to what really is substantially the whole of informed medical opinion.’

However it is difficult to formulate where they would act reasonably if they all have different ideas of what is correct. It is unclear what determines whether a person is considered to be ‘reasonable’ and what is expected of a person of responsible profession that has the maximum amount of care. Given that evidence is needed it is yet to be clarified what a witness is expected to know given that they have no medical knowledge. Different body’s have different opinions as to what is the appropriate standard of care. The uncertainty leads to overhead costs for required litigation, and can lead to on-financial costs on the part of the doctors themselves, such as lost time and self-esteem (Weiler et al. 1993). This has lead doctors to practice ‘defensive medicine,’ where individual practitioners fear litigation and they choose fields and treatments which reduce the costs of litigation but will ultimately increase costs. An example of this is ordering more than necessary medical tests; Sloan et al (1989) also considers that doctors can avoid offering treatment, in fear of litigation, offering them a greater overall benefit.

Medicine, though a highly skilled profession, is not generally regarded as being an exact science. The reasonable man would have expected a defendant to exercise all the proper skill and care of a surgeon in that speciality he would not have expected the defendant to give a guarantee of 100% success (Thake v Maurice 1986). The nature of the contract varies however, for example a patient may make an agreement directly with a doctor, who can arrange for the patients admission or alternatively the patient’s agreement may be made with the hospital which then employs a doctor to provide the services. Breach of this sort of contractual term could give rise to an action for breach of contract. It is for the claimant to prove that the defendant has breached her duty of care. The maxim res ipsa loquitur allows the courts, in certain circumstances, to state that the defendant was negligent. There is dispute over whether it reverses the burden of the proof (not negligent) or whether the burden of proof remains with the claimant (negligent). The maxim will apply where the injury would not normally happen unless someone had been negligent. Thereby if the defendant acted in a manner which is unreasonable i.e. medical malpractice, then this would constitute as a breach in duty of care. Evidence therefore needs to be provided relating to the situation where the patient should have received the appropriate level of medical attention while in hospital. This is often difficult in medical negligence because by definition, the patient is generally already ill, and so there may immediately be at least two more possible causes of her/his poor health.

However, medical malpractice can also be dealt with using a no fault regime. A no-fault regime has been increasingly seen by many as a preferred alternative to the tort system. This view is driven by perceived deficiencies in the tort system itself, rising liability insurance premiums and a belief that harmed patients are not adequately compensated. Therefore a no fault regime is when compensation is given to a patient to recover for the certain losses of the person injured or harmed. The difference between negligence and a no fault regime is that with a no fault regime, compensation can be given without proof of fault. A rule of no fault also incorporates the idea of strict liability which is when patients receive compensation irrespective of the doctor’s standard of care. Cummins et al. (2001) explains no fault schemes with strict liability as “payments of compensation is not contingent on the attribution of fault.” Payments of compensation are made regardless of the injurer’s level of care, yielding the same socially optimal level of care as the negligence based rule. If the courts are able to assess the full cost of harm to the victim, and issue a payment of damages equal to this cost, then a rule of strict liability will ensure that the efficient level of care is chosen by the potential injurer. The rule of strict liability with perfectly compensatory damages gives the victim no incentive to take precaution. The defendant is indifferent between an injury with compensation and no injury. A no-fault rule can now be examined using Figure 1.0. As Fenn (2004) explains, the clinicians and the courts total cost function are given by x + D(x) and now the clinician only maximises u[W – x – D(x)], yielding the practitioners care level at x*. Therefore this shows that even where potential injurers are extra cautious, a rule of strict liability ensures that they will have to pay damages to the victims.

An advantage of the rule of strict liability is that it is the injurer who has to bear the cost of searching for the optimal level of care, as Finsinger and von Randow (1991) suggest. In many cases, he is better at deciding what precautions to exercise and to what extent he should do so because he is likely to be familiar with the activity that can cause an accident. Under strict liability, all the courts need to do is to determine the size of the damage, whereas, under the negligence rule, the courts also need to determine the level of due care as a legal standard for the socially optimal level, and they have to determine the level of care actually taken in order to see whether the injurer was negligent or not. Proving negligence, however, can be difficult and costly. However, given the possibility of escaping liability, the injurer will not be motivated to consider the effect on the total amount of damage; she will consider her private benefits only. However under strict liability, the injurer internalises the total amount of social costs and reduces the level of activity to the socially optimal level.

Causation becomes crucial when there is proof of injury involved. One the claimant has established that the doctor has breached her duty of care; she still has to prove that it was this breach of duty that caused the injuries. In other words, in order for the plaintiff to sue, causation must be proved in order to demonstrate that the defendant caused the outcome. In a causation-only system, liability would be based simply on the fact that the act of a doctor has lead to worsening of the patient’s medical condition. Therefore causation poses difficulties in medical negligence actions because, as I have already stated, there may be at least to possible causes of the patient’s injury: the doctor’s actions and the patient’s pre existing conditions. The standard test for causation is often referred to as the ‘but for’ test. This is when the claimant must show that their injury was caused by the doctor’s negligence rather than something that would have happened anyway.

However under both negligence based and no fault rules clinicians may pass on the liability to third party payers. The potential injurer shifts the risk onto the insurer and can avoid facing costs efficient to induce appropriate care, Fenn (2004). An alternative third-party may be the individual’s employer (e.g. a clinician’s hospital). This is called a no fault scheme which has existed in the NHS since 1990. The hospital may shift the risk onto an insurer, and in order to ensure that employees have incentives to supply care, the agencies will need to have mechanisms in place to monitor, record, investigate and punish any acts for which it is held liable. The agencies can set their own rules in determining the questions to be asked to the defendant and whether they deserve compensation. They are funded by a levy on hospitals however it does not provide a financial incentive for the agency to take care as the agency will pay the compensation and not the defendant. However government agencies cannot necessarily afford a no fault scheme and resort to designing a system that is less expensive and will compensate for up to 75% of wages. A scheme designed purely to compensate should be able to do so with no greater administrative overheads than private and social insurance schemes. Of course, the extent of investigation costs will depend on the burden of proof. Danzon (2000) observes that negligence-based liability for clinical negligence appears to involve higher administrative costs than alternative means of providing compensation. NHS hospital Trusts now have a certain amount of financial autonomy, and can in principle pass on some of the risk from medical accidents to Primary Care Trusts (PCTs) who refer patients and commission much of the treatment that hospitals provide.

In Sweden, New Zealand and some American states, it is sufficient mainly to prove that the defendant caused the injuries in order to receive damages. Because it is not necessary to prove negligence, these schemes are often termed ‘no-fault’ schemes, and are typically thought to have lower administrative costs due to the reduced burden of proof. Therefore the no fault compensation scheme can be seen in Sweden. The Swedish system is known as the Swedish Patient Compensation Insurance (PCI); a type of no-fault scheme. The key element of Swedish compensation model is the concept of avoidability. For example, a claim is compensable if (1) it occurred with ‘substantial probability’ as a direct consequence of clinical error and (2) either the treatment was not clinically justified or the injury could have been avoided by treating it differently. The most prominent feature of the Swedish model is its low budget cost and administrative overhead rates. Danzon (1994a), claims that payouts in Sweden for medical negligence make up just 0.16% of the total healthcare budget, compared to over 1% in the United States. The potential savings from switching from a negligence rule to a causation based liability rule would seem appealing in this instance (Weiler 1991). However, in New Zealand, the injurer must prove that the defendant caused the injuries in order to receive the compensation which is issued by government funded agencies.

The Accident Compensation scheme (ACC) was adopted in New Zealand in 1974. It was intended to provide quick compensation from all injuries with no requirement for proof of fault however it removes the ability to sue. With the absence of the right to sue means that there is no tort-based incentive to behave at a socially optimum level of care for those that may be negligent, but not criminal. Therefore, the overall efficiency of the scheme is almost entirely dependent on external monitoring and enforcement of participant behaviour. However Danzon (1990) shows that in the first 15 years of the scheme, overhead costs fell from 50 per cent of total expenditures under the tort system to under 10 per cent using ACC (Danzon, 1990:4). The two systems differ in that New Zealand follows an extreme form of no fault compensation compared to Sweden where there are no incentives to prove the fault as it reduces the incentive to sue. Unlike Sweden and New Zealand, the UK follows the negligence rule where the NHS covers compensation. However, recently the UK’s approach is criticised for failing to provide fair compensation and in creating incentives for deterrence. In the current UK system both require the claimant to prove legal responsibility of the defendant. They must establish and that there was medical care falling below a reasonable standard, which caused them a injury or worse outcome. Compensation can only be achieved by pursuing a claim through the legal process. However medical staff believe that the system creates a culture of blame and causes damage to their reputation, whether they are found to be negligent or not. It also undermines the doctor-patient relationship. However the strongest argument against the system is that it is costly and many commentators argue the cost of settling cases often exceeds, that actually paid to the claimant.

When comparing a negligence rule and a strict liability rule we can say that under that liability rule, proof of negligence is a necessary condition for liability. In contrast, under a rule of strict liability, proof of causation is a necessary condition for liability and the proof of negligence is unnecessary. In other words, the tort of negligence requires the injurer to breach a duty of care. In a no-fault scheme, the claimant only needs to prove that his injuries are caused by the medical treatment and not the conditions that led him to seek it. In the case of strict liability, the court determines the questions to do with tort, and does not have to determine whether there was fault on the dependant, only the proof of causation. Shavell (1987, p. 264) argues that under strict liability the number of claims is likely to be higher than under negligence because the victim has an incentive to make a claim whenever her damages exceed the costs of making the claim. Under negligence, on the other hand, the injurer can escape liability by demonstrating that she has not violated the legal standard of care.

In conclusion, both the rule of strict liability and the rule of negligence achieve the socially optimal level of care. Under strict liability, the injurer has to bear the total amount of expected damages, whereas under the negligence rule, the victim has to bear the accident costs if the injurer exercised due care. Therefore the negligence rule may be the preferred route in the context of a financial aspect and in addition the fact that the defendant cannot avoid being held liable as under strict liability the injurer will not be motivated to consider the effect on the total amount of damages. The no fault scheme however will not be feasible in a UK context as Fenn (2004) estimates this at around £2.1 billion per annum, around 6 times more than the current system. Nevertheless turnover of cases would be quicker and the legal and administrative costs of running the scheme would be much lower. It is also argued that a no fault scheme would offer greater certainty for claimants, as circumstances in which compensation would be paid, would become clearer. Therefore, whilst a ‘No Fault’ scheme operates effectively in some jurisdictions, and may be suitable for dealing with some smaller, lower value clinical negligence cases, the complexity of issues that these cases raise must be appreciated. However an efficient negligence rule is preferred as it requires an appropriate due care standard.