Published 11/1/2012
David H. Sohn, JD, MD

No-Fault Compensation Systems

Are there benefits to not assessing blame?

Most patients injured in medicine are not eligible for compensation, a fact often lost in discussions of medical liability tort reform. Only patients whose injuries were caused by negligence on the part of the physician or other healthcare provider can seek compensation. Most injuries in medicine, however, are due to either system errors or nonnegligent reasons.

An adverse event, for example, is an injury caused by medical management, such as a patient’s unforeseeable allergic reaction to a prescribed antibiotic. Negligence is the failure to provide a standard level of care. The physician’s failure to check the patient’s chart, which listed the patient’s allergy to the antibiotic, would be negligence.

How common is negligence?
Many adverse events occur in the practice of medicine, but relatively few are due to negligence. For example, a Harvard Public Health Study estimated that only 27 percent of adverse events were due to negligence (
Fig. 1). Medicine is not an exact science, and complications are an inherent feature of any procedure or medical intervention. For example, surgical procedures generally carry a 3 percent to 4 percent risk of infection, despite the use of sterile techniques, preoperative cleansing, and prophylactic antibiotics.

Punishing adverse events per se would have a chilling effect on treating complex or difficult procedures, such as liver transplants or neurosurgery. It would also discourage care of high-risk patients with multiple comorbidities. An ideal oversight system would not punish adverse events, but rather would identify and target medical errors.

It is also important to understand the difference between negligence and system error. A system error will occur from time to time simply because healthcare providers are human. They are made unintentionally and are not decision errors. Good organizations recognize the human error component and safeguard against it. A good system can reduce these errors by instituting processes such as using computerized medication orders to prevent dosage mix-ups or identification bracelets to prevent confusion between patients with similar names.

According to the Institute of Medicine, most medical errors are the result of unavoidable human errors, which can only be reduced through system changes. Punishing the individual who made the error will not reduce future errors and make a safer system. It might, however, encourage workers to hide, rather than report, errors.

In medicine, many people work together for a common goal. The best systems acknowledge that, due to the human element, occasional errors will occur. Accordingly, they implement a series of checks and re-checks to catch and contain errors. For example, airline workers might, even when diligent, occasionally mistake an oxygen tank for a nitrogen tank. Rather than punish the workers, a better solution would be to use different couplers for these two gases, so a nitrogen tank cannot be hooked up in place of the oxygen tank.

Actual negligence is rarely present in most alleged cases of medical malpractice. In one study of New York hospitalizations, adverse events were reported in 3.7 percent of all hospitalizations. In more than 70 percent of these cases, however, no negligence was present. In another closed claim study performed at Harvard, only 15 percent of medical liability cases actually contained negligence. And in a 2005 Congressional Report, more than 80 percent of malpractice cases reviewed contained no negligence. A rational oversight system will devote more energy toward the more commonly made errors.

The current U.S. system
In the United States, medical errors are compensated under the tort system, which seeks to deter negligence by monetarily punishing negligent providers and compensating the injured parties with those monies. According to Prosser and Keaton on Torts, the goals of the litigation system are as follows:

  1. to compensate plaintiffs injured by negligence
  2. to discourage the practice of negligence
  3. to exact corrective justice

The system, however, has some important limitations. Because the litigation system can only deter negligence and compensate patients for injuries attributable to negligence, most patients who experience adverse events will have no recourse through the litigation system. This, however, does not prevent them from suing. Many patients sue when an injury occurs because they fail to understand the fundamental differences between an adverse event and a medical error or the difference between system errors and true negligence. As a result, an overwhelming amount of time and money is spent on fruitless litigation that serves neither to compensate the injured patient nor to improve health care.

More than 60 percent of all filed medical malpractice lawsuits are summarily dismissed as having no grounds for even the initial filing. According to a claim trend analysis from medical liability insurers, less than 1 percent of all filed medical malpractice claims actually result in a verdict for the plaintiff. Even in these cases, most of the award is consumed by the attorney and administrative costs. Of the $76 billion to $126 billion spent each year in the United States on medical malpractice litigation, very little ends up compensating the patient.

In addition, litigation often has a negative effect on physician behavior. On a personal level, it creates an environment of fear and anxiety, disrupting the physician-patient relationship and causing physicians to fear patients and potential litigants. On a societal level, it causes physicians to practice defensive behaviors and avoid offering high-risk services.

A more rational system would focus more on the goals of compensation and improvement, rather than punishment of those who err. Such a system would allow the majority of patients injured in medicine to have compensation for their injuries while avoiding the unnecessary costs and inefficiency of lawsuits for injuries that are not due to negligence.

No-fault compensation
Several countries have no-fault compensation systems for medical injuries. New Zealand, Sweden, and Denmark have replaced litigation with administrative compensation systems in which patients who sustain an avoidable medical injury can apply directly, without an attorney, for compensation. A panel of medical experts reviews the case and decides on compensation.

Such systems allow compensation to the injured parties without finding fault or negligence. This immediately increases the pool of patients who are entitled to compensation. More importantly, information from claims is used to analyze opportunities for system improvements. Thus, these systems acknowledge that most medical errors are actually system errors and become mechanisms to seek system improvements. In this way, no-fault compensation systems are the most rational of oversight systems available today.

New Zealand instituted no-fault medical liability in 1974 and has demonstrated benefits in efficiency both in time and money. Typical trials in the United States take years to resolve, while the average claim in New Zealand is processed in weeks, with all decisions made within 9 months. With a fixed compensation system for similar types of injury, there is uniformity in the compensation among patients. No time is wasted on trying to determine who is at fault; the focus instead is on the patient’s injury and delivering compensation.

This time saving translates to monetary savings. While upward of $122 billion is spent per year in medical malpractice in the United States, only $29 million per year is spent on the no-fault compensation in New Zealand. Further, more of the award actually goes to the patient. In the United States, attorney fees and administrative costs typically consume 55 percent of plaintiff awards, compared to just 10 percent in New Zealand.

Finally, more patients are eligible for compensation. New Zealand has introduced concepts of both “medical negligence” and “medical mishap,” defining a mishap as an untoward event that is not based in negligence. Patients who sustain injury due to mishap can be compensated, making more patients eligible for redress.

Why not here?
In the United States, legitimacy objections may be raised against no-fault compensation systems. The U.S. Constitution guarantees a right to a jury trial for criminal proceedings, a right that has been extrapolated to civil proceedings as well. However, unlike for criminal proceedings, the right to a jury trial in civil cases is not absolute.

For example, workers’ compensation replaces jury trials with administrative hearings focused on the worker’s injury and compensation. Another example is noninjury automobile accidents. Some states exclude “fender benders” from the trial court and motorists are compensated for damage to their automobiles through no-fault insurance.

Whether the right to a civil jury trial may be waived appears to depend on two factors. First, is there a compelling public interest to do so, as in the case of automobile damage? Second, is there some trade-off to the plaintiff, as in workers’ compensation? From this perspective, no-fault systems likely would be legitimate. Many more patients could find relief and the decrease in wasteful litigation would benefit the healthcare system and nation as a whole.

The second obstacle to no-fault compensation systems may be more serious. Trial lawyer lobby interests would almost certainly vigorously oppose a no-fault compensation system. To date, the strong influence of the trial lawyer lobby has resulted in specific exclusions of meaningful tort reform in legislations such as the Patient Protection and Affordability of Care Act of 2010. Thus, the strongest challenge to instituting a no-fault compensation system for medical liability is not that it is unproven, nor that it is not legally legitimate, but that it may not be politically feasible.

David H. Sohn, JD, MD, is the Orthopaedic Risk Manager editor and an assistant professor in the department of orthopaedic surgery at the University of Toledo Medical Center. He can be reached at david.sohn@utoledo.edu


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