The Impact of Malpractice Reforms on the Supply of Physician Services

1. The Impact of Malpractice Reforms on the Supply of Physician Services David Becker, UC-Berkeley Daniel Kessler, Stanford GSBWilliam Sage, Columbia Law School

2. Outline • Introduction • Models • Data • Results • Discussion

3. Introduction • “Positive” defensive medicine involves the use of tests or procedures with little expected medical benefit in effort to avoid malpractice claims. • “Negative” defensive medicine involves declining to supply care that has expected medical benefit in order to avoid malpractice.

4. Introduction • In this paper we focus on a particularly important form of “negative” defensive medicine – the physician supply decision. • We estimate the effects of “direct” and “indirect” reforms in state malpractice tort law on the supply of physicians at the state level from 1985 to 1995 • “Direct” reforms include caps on damage awards, abolition of punitive damages, abolition of mandatory prejudgment interest and collateral-source rule reforms. • “Indirect” reforms include caps on attorneys contingency fees, mandatory periodic payment of future damages awards, joint-and-several liability reforms, and patient compensation funds.

5. Models • We model the number of active physicians in state s in year t (Nst) as a function of: • State- and year-fixed effects (αsand θt) • Population of state s in year t (Pst) • Legal political characteristics of state s in year t (e.g political parties of state’s governor and legislature, Wst) • Whether or not managed care enrollment in state s in year t was above the median level (Mst) • The presence of “direct” and “indirect” malpractice reforms (from a maximum-liability regime) in state s in year t which occurred between 1986 and 1995 (L1st and L2st, with Lst=[L1st | L2st]

6. Models: Other Specifications • In addition to looking at the total number of active physicians, we also examine: • Subpopulations particularly prone to malpractice pressure: • Non-group practice physicians. • Physicians in specialties with highest malpractice premiums: anesthesiology, OB/GYN, radiology, emergency medicine, surgery and radiology. • Short-run and long-run effects of tort reform. • Effects of reforms in high- versus low-managed care states. • Decomposition of net effect of reform into entry/retirement and moves.

7. Data • AMA Physician Masterfile provides counts of physicians involved in direct patient care. Provides state of residence, years of experience, specialty and employment type. • Data on state malpractice laws and legal/political and other health care market characteristics comes from earlier work by Kessler and McClellan (Journal of Public Economics, 2002) • State-level HMO penetration data comes from Interstudy.

8. Results

11. Key Findings • In regression models, physician supply rose by 2-3% more in states which adopted direct liability reforms during our study period. • Effect of direct reforms is greater (3-4%) amongst non-group practice physicians. • Reforms have a larger effect on physician supply three or more years after their adoption than two years or fewer after adoption. • Positive effects of direct reforms are greater in high- versus low-managed care states. • Direct reforms have a greater effect on entry and retirement decisions than on the movement of physicians between states.

12. Limitations • We do not assess the impact of reforms on costs of care or on health outcomes • If physicians induce demand for their own services beyond point of medically necessity, reform induced increases in physician supply may be socially harmful. • However, if competition among health care providers leads to lower prices and higher quality, than tort reform induced expansions in physician supply may be welfare enhancing.