exist side by side with MAI, particularly for the purpose of covering portions of the field not immediately reducible to compensable events. The incentives produced by MAI might obviate regulation of inputs altogether, particularly personnel licensure, or at least allow a shift to institutional licensure, covering only hospitals and HMOs and allowing greater flexibility of manpower use in such enterprises (Tancredi and Woods, 1972; Carlson, 1970). Also, hospitals might be influenced, either directly or by their medical staffs or their MAI carrier, to invest their resources more often in qualitypromoting facilities and equipment rather than in the frequently wasteful ways which have prompted so-called "certificate-of-need" laws governing health facilities construction. Although many arguments for more intensive hospital regulation would remain, quality issues would loom less large. Accreditation and licensing efforts could look more to human values and fiscal responsibility. The chief source of concern about the quality of care rendered by HMOs, particularly proprietary ones, would be largely eliminated by MAI, allowing the adoption of less restrictive policies and thus promoting quicker realization of HMOs' promise as a competitive, cost-conscious alternative to insured-fee-for-service medicine. The medical profession has consistently looked to "peer review" as the preferred means of controlling physicians' impact on medical care costs, utilization, and quality. Clearly, physicians are more competent than anyone else to oversee medical care. Nevertheless, experience with peer review and with the profession's other self-regulatory efforts has been spotty. In our view, these mechanisms will not be sufficiently dependable as long as the regulators and the regulated are motivated to make them work only by a variable sense of professional responsibility and by fear of regulatory intrusion by government. MAI could provide a more consistently felt incentive for diligence in peer review by putting all doctors at some degree of risk for bad outcomes. Once such an incentive was introduced, the public could be sufficiently assured that peer review and professional self-regulation protected them against poor-quality care rather than doctors against criticism. While MAI would rely strongly on peer review to accomplish many quality improvements, it would be a more aggressive kind of peer review than is usually found today. Nevertheless, it appears to us that medical practitioners stand to gain a great deal from MAI in the way of noninterven tion in their decision making and in the physician-patient relationship. Conclusion Current discussions of liability (cost-bearing) rules among legal scholars focus largely on the need to design such rules to order the incentives bearing on actors who are capable of affecting performance of an economic system. Health care providers' incentives are difficult to order correctly, but there should be no argument about the desirability of increasing providers' stake in the quality of the outcomes they are achieving. This is not to say that providers are motivated by economic incentives alone, for dedication to patient welfare and professional excellence are prominent characteristics of most individual practitioners and most health care institutions. Nevertheless, we believe major quality improvements would flow from arranging things so that financial interests and professional responsibilities closely coincide. Perhaps a more important influence than the mere desire to keep premium costs down would be the challenge which recorded outcomes experience would provide to professional pride and excessive self-confidence. The financial impact will be the critical factor only among those providers, a distinct minority, for whom professionalism is a weak control. Medical adversity insurance is designed to create correct quality-inducing incentives by means of a systems-engineering approach to the incentives operating in highly complex medical problem areas. We have tried to specify the MAI system in enough detail to permit a preliminary judgment to be made about its potential value. We believe it has special attractions both as an escape from the dysfunctional malpractice tort and insurance system and as a nonregulatory attack on the problem of obtaining higher quality medical care. The next step in developing MAI would be to launch some sophisticated professional efforts at specifying compensable events for particular areas of medical practice and developing the necessary MAI policies and experience-rating formulas. If it turns out that this can be done to the satisfaction of responsible medical experts and other interested observers, the system and the list of events should then be tested for manageability in a "dry" run against the experience over a period of time of several hospitals and perhaps even an entire county medical society. Experience gained in these simulated studies, though giving only an inadequate indication of the quality gains possible, might pave the way for a run using real money, perhaps initiated by a state legislature in cooperation with a far-sighted Professional Standards Review Organization or foundation for medical care. In view of the need for prompt attention to quality issues, expeditious action on MAI and some willingness to plunge forward without complete assurance would seem to be indicated. In addition to promising very great quality dividends, the system would feature enough flexibility and would be sufficiently under professional control that no major harm could occur. Nevertheless, its complexity is such that only a major effort could bring it into being in time to assist in the preservation of a pluralistic, unregimented medical care system. Without the support of major elements of the medical profession, however, such an effort is unlikely to be launched. While we expect reaction of professional groups to be favorable on balance-if still not finally convinced- we await their responses with interest. As challenging as MAI has been to us as an academic exercise, we do not offer it as such. Clark C. Havighurst, J.D. Professor of Law Duke University School of Law Durham, N.C. 27706 Laurence R. Tancredi, M.D., J.D. Institute of Medicine National Academy of Sciences 2101 Constitution Avenue, N.W. 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