Does Liability for Medical Malpractice Drive Health Care Costs and Technology Adoption?
- Presenter:
Chair: Catherine McLaughlin; Discussant: Robert Town Tue June 6, 2006 15:30-17:00 Room 235
Liability for medical malpractice has been the focus of enormous controversy in recent years. Many have argued that it artificially inflates the price of medical services and limits access to health care. Our paper investigates the relationships between liability for medical malpractice, medical costs, and the adoption or utilization of new health care technologies. These relationships are complex, with causality running in different directions. Growth in litigiousness and liability could drive up the cost of receiving health care, as many charge. On the other hand, increases in the cost of medical care from other quarters could mechanically inflate the cost of recovering from medical errors. In this way, medical cost growth could be the cause of increased malpractice liability payments. Similarly, rapidly rising malpractice costs could stunt the adoption of new technology and make health care providers excessively risk-averse. On the other hand, malpractice risk may encourage the utilization of accepted technology and treatment methods; this is an important policy goal of the malpractice regime.
We employ several identification strategies to sort through these channels of causation and examine whether malpractice risk substantially contributes to health care costs. We first exploit county-level variability in the “generosity” of jury verdicts. Juries in certain parts of the country have exhibited a willingness to award larger damages for substantially similar transgressions. Jury generosity affects local malpractice claims levels, but plausibly has no direct effects on medical costs or technology adoption/utilization. We also exploit variability in non-malpractice measures of medical costs, such as practice expenses and the relative wage compensation paid to highly skilled workers. These arguably affect medical costs without having direct effects on malpractice payments. Finally, we exploit variation in malpractice premia and technology adoption across different specialties. These analyses will provide us with important evidence about how medical malpractice liability really impacts the functioning of the health care system.
