Federalization Snowballs: The Need for National Action in Medical Malpractice Reform

Because tort law and healthcare regulation are traditional state functions and because medical, legal, and insurance practices are localized, legal scholars have long believed that medical malpractice falls within the states’ exclusive jurisdiction and sovereignty. This conventional view fails to consider the impact that federal healthcare programs have on the states’ incentives to regulate. As a result of federal financing, each state externalizes some of the costs of its malpractice policy onto the federal government. The federal government therefore needs to take charge of medical malpractice in order to fix the spillover problem created by existing federal healthcare programs. Importantly, the need for federal intervention in medical malpractice arises solely from the federal government’s prior decisions to pay a portion of healthcare spending. Unlike traditional spillover stories, the story here is not that the states are inevitably ill-suited to govern medical malpractice; rather, the federal government has made them so. The federal government’s prior interventions in healthcare spending have snowballed into a need for federalization of medical malpractice. This causal distinction between spillover and “snowball” stories bears theoretical and practical significance for functional models of federalism, and it could explain and justify federalization decisions in a range of regulatory regimes.