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NO-FAULT HEALTH INSURANCE WOULD BE BEST POLICY

Second of two parts on patients' rights

The core financial side of the battle for patients' rights lies in the message, "Payment denied." The HMO refuses to pay for a treatment or medical specialist that your doctor thinks you need.

Maybe you have the money to cover the treatment yourself. But what if you don't? Congress is wrangling over whether to hold an HMO liable, if it wrongly refuses payment and the patient is injured -- or dies -- as a result.

The broadest form of liability under discussion is the right to sue employee health plans for malpractice. But there's an even better solution: no-fault health insurance. Unfortunately, this approach isn't under discussion at all.

If you believe in market incentives, as HMO boosters say they do, you should back liability in some form.

The current system creates a moral hazard for HMO decision-makers. By denying medical treatment, their profits go up -- and without risk of loss, if their decision was wrong. The market incentives lie on the side of saying "no."

Currently, malpractice lawsuits against employee plans are effectively forbidden in 40 states. Congress isn't going to change that. A bill in the House, permitting malpractice lawsuits against employee HMOs, recently went down to defeat, and stands no chance in the Senate.

But lawsuits aren't the ideal solution. Of all the patients injured through medical negligence, only around 12.5 percent find a lawyer and file a claim against the doctor or hospital, according to studies by Harvard Law School professor Paul Weiler. Only 4 percent actually collect.

The most seriously injured get the least money relative to the damage done. Lawsuits are lotteries, not rational compensation systems.

If I were czar, I'd bring in no-fault liability insurance. Under no-fault, everyone injured -- by the doctor, hospital or nurse -- would be compensated, with no lawsuits involved and no finding of fault. That's how people injured on the job are paid under workers' compensation. The maximum number of injured people are covered, at the minimum cost. Employers, employees and labor unions like it better than the lawsuit system. No-fault also encourages the responsible party to take more care. The fewer claims paid, the lower the insurance premiums.

Workers' compensation, for example, prods employers into running a safer shop, according to a study by Harvard Law School economist Kip Viscusi.

The risk of having to pay more, if accidents rise, reduces workplace injuries by 25 percent to 30 percent, Viscusi says. By contrast, rules requiring a safe workplace under the Occupational Health and Safety Act reduce injuries by only 2 percent to 3 percent.

No-fault should lower medical injuries, too. According to Weiler's studies, of 40 million patients hospitalized each year, around 400,000 suffer injuries due to negligence -- a much higher rate than the medical profession previously thought. If the hospital or medical plan had to pay for all these injuries, "they'd have more incentive to invest in systems that can make things better," Weiler says.

What's the biggest source of medical errors? Failure to communicate -- doctor-to-doctor, doctor-to-nurse or nurse-to-nurse. The various people caring for a patient don't always know what's going on.

It's easier to address these problems when people aren't in a moral battle over who's at fault. Weiler and his colleagues recently looked at what would happen in Utah and Colorado if a no-fault system were imposed. A lot depends on the system's design, and trade-offs are inevitable. For example, there'd be caps on pain-and-suffering awards (which are mainly used to pay the patients' lawyers), as well as restrictions on other benefits.

In the end, a no-fault system could cost about the same as the lawsuit system, while providing compensation to significantly larger numbers of patients.

The big losers would be lawyers -- both patients' lawyers and the lawyers for medical personnel. They currently take around 45 cents of every claims dollar spent on today's malpractice system, Weiler says. No-fault insurance could reduce that by half (or even more).

You can see where this leads. Lawyers would spend big bucks to oppose no-fault -- and as you know, only money talks in Washington these days. It's not clear how insurance plans would react. No-fault health insurance would be superior social policy. But Congress isn't likely to give it the time of day.

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