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Improving Patient Safety And Lowering Malpractice Costs Through "No-Fault" Compensation Systems

The current medical malpractice system in the United States is widely regarded as flawed. Few patients who are harmed due to medical negligence file claims, those who do wait an average of three years for the decision, and when compensation is awarded, the amounts vary widely, even for similar injuries. The threat of malpractice strains the patient–doctor relationship and has a chilling effect on providers’ openness about medical errors, potentially leading to missed opportunities for improvement. Finally, high malpractice insurance premiums, coupled with physicians practicing inefficient, “defensive” medicine, drive up health care costs—by more than $55 billion annually by one estimate.

A number of reforms have been proposed to improve the current system, and many have been implemented on the state level. For example, more than half of states enforce some form of a cap on damages. In an effort to spur reform efforts, the Affordable Care Act invested $50 million to fund new initiatives led by state agencies, health systems, and insurers to resolve medical injury disputes. These funds will likely target programs that not only reduce costs, but also aim to improve patient safety and openness between doctors and patients.

One proposal is to replace the current litigation system with an administrative or “no-fault” system. Under such an approach, a panel of experts (sometimes referred to as a "health court") examines claims and awards compensation without finding negligence on the part of the provider. New Zealand, Sweden, and Denmark all operate such no-fault systems, which have proven effective at limiting the costs associated with malpractice, while also increasing the number of injured patients receiving compensation. In all three countries, processes to discipline low-performing physicians are kept separate from the patient compensation system, as a way to encourage physician cooperation and not sour the patient–doctor relationship. Finally, the data collected through these systems are available for analysis and can be used to improve patient safety.

Further Reading

New Zealand’s Accident Compensation Corporation

Since 1974, New Zealand has operated a no-fault administrative system for compensating victims of medical injuries, the tax-funded Accident Compensation Corporation (ACC), which also compensates victims of other kinds of injuries, such as those related to vehicles or work. All victims of a medical injury that is not a “necessary and ordinary” part of treatment are eligible for compensation, whether or not the injury resulted from negligence. Physicians submit claims to the ACC on behalf of the patient free of charge. Roughly two-thirds of cases are decided by an in-house peer-reviewed panel comprised mainly of clinicians. In complex cases, or where causality is difficult to determine, outside experts are consulted. On average, claims are resolved within seven months from the filing date, though patients may appeal.

Compared with U.S. patients, New Zealanders are more likely to receive some form of compensation, but the average amount per claim is far lower. This difference may, in part, reflect the fact that injured patients in New Zealand have other financial protections not enjoyed in the U.S., such as universal health coverage, so they have less medical debt resulting from the injury. Compensation amounts are determined in an equitable and transparent way—people with similar injuries and needs receive similar amounts.

Payments are ongoing and cover lost income, child care, medical expenses, housing modifications, and social and vocational rehabilitation. The adequacy of the rewards for non-economic (or "quality-of-life") losses—capped at $85,500 and only available for patients who have been permanently impaired—is a source of controversy.

A side benefit of a centralized system is the potential to use the information generated for patient safety research and prevention. The ACC conducts analyses of its claims data and disseminates findings to providers and professional organizations, though some argue that researchers have not taken full advantage of this data source.

Further Reading

Sweden’s National Insurance for Avoidable Medical Injury

The Landstingens Ömsesidiga Försäkringsbolag (County Council Mutual Insurance Company, or LOF) is a mutual insurance company that covers patient injury for all public health care providers and private providers contracting with the Swedish government. All private providers not covered by the LOF are required to have other liability insurance. The eligibility standard for compensation in Sweden is "avoidability," defined as whether the injury would have occurred in the hands of an experienced specialist, or if there were other, less risky alternative treatments that could have been chosen instead. This is a looser standard than “negligence,” but stricter than the standard in New Zealand. Some unavoidable injuries caused by equipment failure or hospital-acquired infections are also covered.

Claims are submitted by patients. They are reviewed by (usually non-clinical) claims handlers in consultation with one or more physician advisors, and 70 percent of decisions are decided within eight months. If they wish, patients may appeal the decision. As in New Zealand, compensation is determined based on such factors as lost income, disability, and medical expenses. Non-economic damages are compensated based on pre-determined amounts.

The LOF is engaged with patient safety improvement efforts, including disseminating claims information to providers and health authorities for risk and incident analysis. The company also funds other patient safety projects, including surgical checklists, prescription drug reconciliation, prevention of hospital-acquired infections, and safety in primary care.

Further Reading

Denmark’s Patient Insurance Association

In Denmark, regional hospital authorities are liable for compensating medical injuries; some purchase private insurance for these costs, but most self-insure. To evaluate claims for medical injury compensation, the hospital authorities and insurers formed the Patientforsikringen (Patient Insurance Association or PIA)—an independent organization governed by regional council members that compensates victims of medical injuries through an administrative, rather than a litigious, process.

Patients or their physician file claims with the PIA, which are then typically assessed at a "doctors’ meeting" of physicians and lawyers. As in Sweden, the eligibility standard for compensation is "avoidability," though it is assessed somewhat differently. Some types of unavoidable injuries due to equipment failure and adverse drug reactions are also eligible, as are some very serious and rare injuries that "exceed what one can reasonably be expected to tolerate." Claims take about seven months to adjudicate. Compensation amounts are determined in accordance with the Danish Liability for Damages Act and consider such factors as treatment costs, loss of earnings, and ability to work. Pain and suffering are compensated according to pre-established amounts based on the type and severity of the injury, with awards limited to $1.7 million.

As part of broad nationwide efforts to improve quality, the PIA is making its claims database available to hospital and health authorities, which have expressed interest in using the information for patient safety. Representatives from the PIA also visit individual hospitals to present individual trends and claims, and to encourage patient safety efforts.

Further Reading

Publication Details



D. Squires, Improving Patient Safety And Lowering Malpractice Costs Through "No-Fault" Compensation Systems, The Commonwealth Fund, June 2012.