American Journal of Law & Medicine

Enterprise medical liability and the choice of the responsible enterprise. (response to article by William M. Sage, Kathleen E. Hastings and Robert A. Berenson in this issue, p. 1) (Quality of Care and Health Reform: Complementary or Conflicting)


During the last year, the proposal of "enterprise" liability for medical malpractice became a major issue in debates about health care and malpractice reform. The idea, however, was not new. In scholarly work over an extended period, we have been developing the systematic case for the concept of enterprise -- or, as we originally termed it, "organizational" -- liability for medical malpractice.(1) After several years of debating the critics of our proposal to shift the focus of liability for medical injury from individual physicians to the organizations that deliver health care,(2) we were naturally gratified that the idea was now on the national agenda.

In particular, we recommended adoption of enterprise liability to President Clinton's Health Care Task Force. The Task Force did embrace a version of the idea as its own, but then encountered stiff resistance from a number of special interests. Finally, however, a proposal for enterprise liability demonstration projects was included in the legislation submitted to Congress last Fall. The Article in this issue by William Sage, Kathleen Hastings, and Robert Berenson ("SH&B"),(3) who headed the Administration's malpractice reform working group, makes an eloquent case for imposing enterprise liability for medical malpractice on the "Health Plans" that would be the vehicle for assuring health care under the Administration's proposal.(4)

Once an affirmative answer is given to the question whether some form of enterprise medical liability, "EML," is preferable to the traditional system of individual physician liability, the most important issue to be addressed is the choice of the responsible enterprise. In this Article we outline our views on that issue,(5) contrasting our position, favoring imposing liability on hospitals and similar health-care delivery organizations, with the SH&B proposal to impose such liability on Health Plans.

Ultimately, the choice of the responsible enterprise turns on the social objectives that tort liability is designed to serve. In our view delivery-based liability of the sort we have proposed would best serve the multiple criteria a sound tort system must satisfy. Delivery-based liability would most effectively promote the goals of medical injury prevention and quality assurance that SH&B themselves believe to be the major advantage of enterprise liability. In addition, delivery-based enterprise liability would be a superior approach to the provision of insurance against and compensation for medical injury, and would outperform any other form of medical liability in reducing the administrative burdens of the tort system. Along each of these dimensions our proposal would mesh more closely than other alternatives with the underlying goals of tort liability: promoting optimal prevention, providing reasonable compensation to accident victims, and minimizing the administrative costs of a fault-based liability system. Importantly, from the point of view of past and future victims of medical injury, delivery-based enterprise liability also would improve upon the protective benefits of tort liability, rather than merely shrink the burdens of that regime now experienced by physicians.


The affirmative case for imposing EML on hospitals and similar enterprises directly involved in the delivery of health care is straightforward. Precisely because the function of these enterprises is to deliver health care, they are in the best position to make decisions about how to optimize the mix of potential risks and benefits associated with treatment of any particular patient's medical condition. By comparison, neither the individual physician,(6) who increasingly is merely a component (though admittedly a key one) of a health-care delivery team, nor an organization (such as a "Health Plan") that is primarily a vehicle for financing or facilitating the delivery of care, is as well-situated to make the critical decisions about how to systematically improve the quality of medical treatment. In our view the delivery-based approach to EML would result in a more sensible system of insurance at somewhat more economical administrative costs, and would best channel the legal incentives for prevention of medical injury and negligence.


The flaws of individual liability as an insurance/compensation system are wellknown. Because of the small pools of physicians in each specialty that insurers use to fashion risk classes, physicians face the threat of substantial fluctuations in their premiums for medical malpractice liability insurance. …

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