Medical Misadventure and Accident Compensation in New Zealand: An Incentives-Based Analysis

Under the provisions of New Zealand's no-fault government-indemnified accident compensation scheme (ACC) victims who are injured as a consequence of medical misadventure receive compensation for their injuries. In exchange for the certainty of compensation ACC legislation waives the right for victims to sue malfeasant practitioners for either compensation or exemplary damages in all but the most extreme cases of gross negligence or deliberate intention to cause harm. Whilst the scheme has been successful in ensuring that compensation has been awarded to many victims for whom the transaction costs of seeking redress via a tort-based system would have been prohibitive (Danzon 1990) it is less certain that the no-fault elements of the scheme provide sufficiently strong incentives to either medical practitioners their patients or third party administrative agents to take appropriate levels of care (Kessler 1999; Howell Kavanagh and Marriott 2002).Given that ACC imposes limitations upon the ability of tort- or contract-based instruments to provide incentives to those who have the power to change the outcomes for victims of medical misadventure greater reliance must be placed upon overt monitoring and enforcement by administrative agencies in order to for the system to deliver an efficient level of medical misadventure. However overt monitoring and enforcement systems are costly and are imperfect substitutes for some of the outcomes that may be achieved utilising the incentives in tort and contract instruments. Total reliance on overt administrative mechanisms leaves the system potentially exposed to risks of even higher levels of misadventure occurring especially if the administrative mechanisms are poorly resourced. Furthermore poor information flows within the system potentially conspire against both the detection and correction of negligent actions (Howell 2001; Prendergast 2001) and make the collection of information to design more effective systems problematic (Danzon 1990).This article discusses the role of incentives to reduce the occurrence of medical misadventure. It argues that appropriate incentives may induce the practice of appropriate levels of precaution by sharing the costs of insufficient levels of precaution between those with the power to exert clinical precaution (practitioners) and monitor and enforce its exertion (administrative agencies) and the victims who will otherwise bear the costs of inadequate levels of precaution being taken. The ability of each of tort-based and no-fault systems to achieve this level of care is discussed and then applied in the New Zealand ACC situation. Illustrations taken from recent medical misadventure cases in particular that of Dr Michael Bottrill in reading the cervical smears of women in the Gisborne region in the 1990s are used to analyse the incentives facing both medical practitioners and those charged with monitoring and enforcing the performance of both medical practitioners and the ACC system.