Does Malpractice Liability Reform Attract High Risk Doctors?

Medical malpractice liability reform is often promoted as a means to increase the labor supply of health care providers and improve access to medical care. Theory suggests, however, that if physicians differ in their malpractice risk, then reforms will tend to attract those physicians with the highest risk. In principle, any association between reforms and overall malpractice risk could be attributable to adverse selection or moral hazard. This paper uses the location and relocation choices of physicians to disentangle these two competing behavioral effects. If moral hazard dominates, only the current practice location should matter, while if there is adverse selection, then the location and relocation history should signal risk. Using data on physicians with multiple malpractice events, the paper shows that relocation history is correlated with risk. Moreover, relocation history appears to predict risk better than current location. Taken together, these results imply that adverse selection occurs and is a comparatively more important behavioral effect than moral hazard. * Direct correspondence to Seth Seabury; RAND; 1776 Main St.; Santa Monica, CA 90407; E-mail: [email protected]. I wish to thank Amitabh Chandra, Darius Lakdawalla, Neeraj Sood, Eric Helland, Robert Reville and John Romley as well as participants at the 2008 ASHE meetings for helpful comments and suggestions. Any and all remaining errors are my own.