The Effect of Malpractice Liability on the Delivery of Health Care

The growth of medical malpractice liability costs has the potential to affect the delivery of health care in the U.S. along two dimensions. If growth in malpractice payments results in higher malpractice insurance premiums for physicians, these premiums may affect the size and composition of the physician workforce. The growth of potential losses from malpractice liability might also encourage physicians to practice “defensive medicine.” We use rich new data to examine the relationship between the growth of malpractice costs and the delivery of health care along both of these dimensions. We pose three questions. First, are increases in payments responsible for increases in medical malpractice premiums? Second, do increases in malpractice liability drive physicians to close their practices or not move to areas with high payments? Third, do increases in malpractice liability change the way medicine is practiced by increasing the use of certain procedures? First, we find that increases in malpractice payments made on behalf of physicians do not seem to be the driving force behind increases in premiums. Second, increases in malpractice costs (both premiums overall and the subcomponent factors) do not seem to affect the overall size of the physician workforce, although they may deter marginal entry, increase marginal exit, and reduce the rural physician workforce. Third, there is little evidence of increased use of many treatments in response to malpractice liability at the state level, although there may be some increase in screening procedures such as mammography. ∗This paper was presented at the National Bureau of Economic Research conference Frontiers in Health Policy on June 24, 2004. This research was funded in part by NIA grant P01 AG19783-02. We are grateful to Alan Garber, Jonathan Skinner, Frank Sloan, Douglas Staiger and conference participants for helpful comments and to Seth Seabury for sharing data. The opinions reflected in this paper are those of the authors and should not be attributed to the NBER or the NIA.