Organizations: School of Management & Engineering, Nanjing University, Nanjing 210093, China · Haslam College of Business, University of Tennessee, Knoxville, TN 37996, USA
Artificial intelligence (AI) is increasingly integrated into medical decision-making, yet its liability implications remain complex, particularly when physicians differ in diagnostic skills and their quality is unobservable. This paper develops a principal-agent model in which a social planner designs medical liability to regulate a physician with private quality information who chooses between a standard treatment, a personalized judgment-based treatment, or following an imperfect AI recommendation. Our analysis yields several novel insights. First, we show that the optimal mechanism under asymmetric information is surprisingly simple: a uniform, one-size-fits-all liability level for all physician types who deviate from the standard of care. Despite physician heterogeneity, this simple policy often achieves the full-information first-best outcome, particularly when standard care is reliable or AI is highly accurate. Second, the relationship between AI accuracy and optimal liability is non-monotonic. Contrary to common intuition, better AI does not always imply more relaxed liability. As AI accuracy increases, the optimal liability either decreases monotonically or follows an inverted-U pattern, depending on the uncertainty of the standard treatment. Third, asymmetric information does not universally reduce social welfare. Welfare loss arises only when standard care is unreliable and AI accuracy is too low; even then, its magnitude follows an inverted U-shape, initially increasing as AI complicates the regulatory problem, but declining as more accurate AI helps mitigate it. Finally, we find that information asymmetry is a double-edged sword in the presence of AI, and greater transparency does not benefit all stakeholders equally.
The integration of artificial intelligence into clinical medicine creates a fundamental tension between algorithmic probabilistic reasoning and the experiential intuition of expert physicians; applying Lawrence Lessig's \enquote{Code is Law} framework, I argue that the architecture of clinical AI systems already functions as de facto medical regulation, reshaping liability and the standard of care. Reframing AI \enquote{hallucination} as structurally analogous to well-documented human cognitive failures such as confirmation bias and premature diagnostic closure, I show that both failure modes demand a unified governance response. I therefore propose a dialectical standard of care that treats the integrated AI-physician dyad as the singular responsible diagnostic entity, mandating the synthesis of algorithmic precision with human interpretive authority within robust data governance and patient privacy frameworks.
Healthcare mechanisms are inseparable from the strategic provider response they induce: existing healthcare AI benchmarks hold this response fixed and so cannot evaluate mechanisms by the equilibrium they produce. We recast hospital mechanism design as program synthesis for language models: typed, inspectable rule programs are executed and scored by Medi-Sim, a multi-agent simulator with five strategic provider channels (coding, selection, delay, effort, triage). An incentive sweep recovers classical health-economics findings as adjacent regimes -- up-coding and low-complexity-patient selection under profit pressure, and Goodhart-style drift where measured performance becomes anti-correlated with true outcomes -- and a single audit lever exposes pressure migration: closing the coding channel more than doubles low-complexity selection. LLM-guided evolutionary code search over the same rule-program space then synthesizes an inspectable mixed-objective program that eliminates up-coding, halves rejection, and retains most of the profit-oriented baseline's funds.
Autonomous AI systems are transitioning from advisory to autonomous roles for medication prescriptions. Recent United States bill H.R. 238 and Utah's prescription-renewal pilot both authorize AI to prescribe medications in an agentic capacity. While some regulatory guidelines suggest aggregate model performance metrics for clearance, they do not require i) calibrated per-prediction confidence for action-gated thresholds, ii) differentiated communication of uncertainty arising from model ignorance (epistemic) versus genuine clinical ambiguity (aleatoric), and iii) inferential transparency at the moment of decision that allows for liability allocation. Here, we present a regulatory and technical argument (tested with a survey of 136 U.S. prescribing clinicians) positioning these as minimum architectural requirements for safe autonomous prescribing. Our results suggest prescribing clinicians i) would not permit autonomous prescribing without a calibrated confidence-based escalation mechanism, ii) preferred a competing-options summary when uncertainty was aleatoric but shifted to abstention when uncertainty was epistemic, and iii) were only willing to accept additional liability when inferential transparency enabled a substantive judgment under acknowledged uncertainty. These findings indicate our recommended architectural features would encourage higher rates of clinician adoption, largely through collapsing much of what "autonomy" conventionally means. A system meeting these requirements would function less as an autonomous agent and more as a heavily supervised decision-support tool. As legislation and state pilots proceed, our technical argument backed by clinician perspectives provides opportunities for regulation to constrain the degree of autonomy ethically granted to AI in prescribing while aligning liability with the institutional actors who control system design and deployment.