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Date
Jun
06
2006

The Impact of Liability on the Physician Labor Market

Presenter:

Mark Showalter

Authors:

Eric Helland, Claremont McKenna, Mark Showalter

Chair: Edward Norton; Discussant: Jinny Kim Tue June 6, 2006 15:30-17:00 Room 309

Medical malpractice reform is a contentious issue. Despite the fact that states have implemented a variety of reforms over the past three decades, the implications of these reforms are still in dispute. Reductions in liability exposure have been shown to reduce malpractice premiums (Born and Viscusi, 1998), but the extent and magnitude of physicians’ direct behavioral responses are unclear. Some researchers have found evidence of a large physician response. Perhaps the best known empirical papers are by Kessler and McClellan (1996, 2000) which examine how health expenditures for Medicare recipients vary with changes in state liability reforms. They find that up to nine percent of expenditures on treatment for heart disease and heart attacks can be attributed to excessive care due to physicians practicing ‘defensive’ medicine, defined as care that would not be done in the absence of a liability risk. However, other researchers have tended to find smaller effects. For example, Dubay et al (1999, 2001) examine data on cesarean section procedures and find relatively small effects attributable to liability reform. Other work by Sloan et al. (1995) and the Congressional Budget Office (2003) also find little effect of liability reform on expenditures.

Our study reexamines the issue of liability reform and its implications for physician behavior. We develop a model in which physicians are unable to fully insure against liability risk, opening the possibility for ‘defensive’ medicine. We then use data on actual physician behavior from the Physician Practice Costs and Income Survey (PPCIS, 1983 and 1988). This data includes physician work hours, insurance level, patient mix, treatment practices, practice structure, among other variables, and we match this data with information on state-level changes in liability law. We investigate changes in physician behavior that correspond to changes in the legal climate. These two nationally representative surveys bracket a period of substantial state-level reform which provides the variation for our empirical strategy.

We use several measures of liability reform, but one measure unique to this paper is derived from malpractice litigation data for Florida from 1980 to 1985. This data allows us to estimate the impact of a damage cap on the distribution of awards by specialty and state. We estimate the impact of liability reform on hours worked per year, the hours spent working in emergency rooms, retirement, number of patients treated and the types of patients treated (i.e. uninsured, Medicaid or Medicare patients). We estimate the impact semi-parametrically using a full set of state-specialty controls. Our preliminary results suggest that doctors reduce their hours worked overall, reduce their hours worked in the emergency room and alter their patient mix in ways that are consistent with avoiding liability exposure. The results also suggest that physicians are unable to fully insure against liability risk through the purchase of malpractice insurance.

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