When IT Creates Legal Vulnerability: Not Just Overutilization but Underprovisioning of Health Care Could be a Consequence

We study the potential impact of the legal vulnerability created by ubiquitous information technology (IT) and provide insights into its unintended consequences in a typical healthcare screening context. Screening policies determine the level of care provision (i.e., whether to conduct a test) based on patient risk information. If IT shares risk information with physicians in the testing stage, follow-up decisions may be more accurate. Yet, physicians may also face heightened legal risk from increased information visibility. In this context, we examine the socially optimal screening (based on risk information) and follow-up policies (based on risk and test information). Litigation is generally associated with the overutilization of health care because of physicians’ defensive medicine practices. In contrast, we find that the strategic underprovisioning of health care through screening policies could be a consequence of information sharing in the presence of litigation concerns. The underprovisioning of health care is aggravated if the precision of risk information relative to that of the medical test increases or the physician becomes more self-interested and less patient oriented. However, limits on malpractice damages can alleviate the underprovisioning of health care.