The impact of malpractice reforms on the supply of physician services
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The Impact of Malpractice Reforms on the Supply of Physician Services. David Becker, UC-Berkeley Daniel Kessler, Stanford GSB William Sage, Columbia Law School. Outline. Introduction Models Data Results Discussion. Introduction.

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The Impact of Malpractice Reforms on the Supply of Physician Services

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The Impact of Malpractice Reforms on the Supply of Physician Services

David Becker, UC-Berkeley

Daniel Kessler, Stanford GSBWilliam Sage, Columbia Law School


  • Introduction

  • Models

  • Data

  • Results

  • Discussion


  • “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.


  • 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.


  • 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]

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.


  • 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.


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.


  • 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.

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