Outcome Warranties

Abstract Public reports of provider-specific patient outcomes aim to help consumers select suppliers of medical services. Yet, in an environment of rapidly changing medical technology and increasingly heterogeneous patient populations, and because they necessarily reflect the experience of other patients who received care in the past, such reports may be of limited value in helping patients forecast the probability of an adverse outcome for each provider they are considering. I propose that providers underwrite insurance policies that promptly pay patients a predetermined sum after an adverse outcome. Patients can use such outcome warranties to infer quality differences among providers easily and reliably. In addition, outcome warranties efficiently reward both providers and patients for reducing the risk of adverse outcomes and thereby improve the safety and affordability of health care. As such, outcome warranties help advance four important goals of health care management: reduction of financial risk, recruitment and retention of physicians, remediation of adverse outcomes, and raising the provider's reputation.