Imagine that there was a standard medical procedure that cost $100 to deliver. One out of every one hundred procedures resulted in a complication that cost $10,000. That's a 1% fail rate.
The expected costs of 100 procedures is $10,000 for the procedure. The cost of the complication is $10,000.
In this simple example, the product liability is one half of the total cost of the procedure.
As this liability is related to the product, it makes sense for the cost of the liability to be included in the product. IMHO, the procedure should cost $200 with $100 per procedure set aside to cover the rare complication.
The advantage of the product liability model is that it encourages the medical system to find ways to reduce the costs associated with complications on a procedure by procedure basis. One can reduce the cost either by finding ways to reduce the risks of complication or by finding ways to lower the cost of treatment of the complication.
The model also allows the medical professional to sell the procedure and risk at a fair and reasonable price.
We can see the role that procedural risk comes to play in birth. Birth is risky business. Lets say that a standard pregnancy and birth costs $3000, but complications during a birth can quickly skyrocket the costs into the stratosphere.
A pregnancy center would be wise to present the entire birth as a product with a single predictable price that includes the liability. The center would charge a figure that includes the standard deliver plus any intensive care resulting from complications.
Insurance formed around an individual procedure (like birth) allows the care provider to create a better product.
People reading this blog might think that I hate insurance. In truth, what I want is a system designed so that insurance provides the maximum value which happens with product liability.
Our current system is dysfunctional. Health Insurance companies sell risk. They prefer the model where the complications associated with a procedure are handled separately from the procedure, making it scary for people to go without insurance.
The medical savings and loan is not adverse to actuarial analysis or to insurance. The program encourages risk analysis to help people handle the risks associated with life.
In the paradigm where people self fund their care, the insurance and risk analysis will be targetted to individual procedures, products and activities allowing for a much more dynamic health care system that empowers both the patient and medical provider.