Medical Malpractice: Examining its Effect on Hospital Efficiency
- Presenter:
Chair: Edward Norton; Discussant: Partha Deb Tue June 6, 2006 15:30-17:00 Room 309
Authors: Shalini Bagga (sbagga@tulane.edu); M. Mahmud Khan (khan@tulane.edu); Praveen Dhankhar (pdhankm@tulane.edu)
Title: Medical Malpractice: Examining its Effect on Hospital Efficiency
Rationale/Objective: There is a growing fear among the physicians that they will not be able to buy medical malpractice liability insurance due to the sharp increases in the malpractice premiums nationwide. A part of the increase in health care expenditures can be attributed to an increase in hospital expenditure. One way of decreasing expenditure on hospitals would be to increase the efficiency of hospitals. We attempt to look at one such dimension in this paper: how does malpractice pressure impact the efficiency of our health-care system, in particular, the efficiency of our hospitals? This side of the story has been neglected so far in the literature, and our paper attempts to fill this gap and introduce a new perspective.
Methodology: Data was combined from four sources: Nationwide Inpatient Sample, American Hospital Association’s Annual Survey, and Medicare Cost Reports, for the year 2001; National Practitioner Data Bank’s Public Use File for years 1998, 1999, and 2000. Malpractice variables were entered as a lag. Efficiency was estimated through the stochastic frontier analysis. We explicitly controlled for output heterogeneity and quality of the services provided: teaching status, location, ownership, region, insurance status, mortality. Two different types of malpractice variables were used: frequency of claims and severity of claims. Severity was in turn represented by: mean payments and median payments.
Results: Our results indicate that malpractice does affect the efficiency of hospitals. In fact, greater malpractice pressure, as given by the mean and median payments, increases technical efficiency of hospitals. The effect is larger for median payment. The sign for frequency of payments is also in the right direction, though insignificant. A point to be made: the existence of ‘corporate shield’ results in underreporting of cases in the NPDB. Therefore, the malpractice results that we present in this paper are going to represent the lower bounds in terms of their effects.
Discussion: The recent focus by the American Medical Association and physicians about the dramatic increases in medical malpractice insurance premiums, and their suggestion of a cap on non-economic damages, deserves a closer look. According to Baicker and Chandra (2004), increases in premiums are not affected by past or present malpractice payments, but may increase due to other unrelated factors. Chandra, Nundy, and Seabury (2005) find that the rising cost of medical services may explain the bulk of the growth of “compensatory awards”. They also find that the greatest ten percent of the malpractice payments have grown at a smaller pace than the average payment for the years 1991 and 2003. This means that the “medical malpractice crisis” is not necessarily fueled by the growth in malpractice payments. Furthermore, malpractice pressure actually forces our hospitals to be technically more efficient. This implies that existence of the medical malpractice system is beneficial, and its strength should not be diluted by either putting caps on non-economic damages or by decreasing the statute of limitations.
