H E A LT H MEDICINE Evidence suggests that the malpractice crisis has more complex effects than are commonly assumed Defensive Medicine and Disappearing Doctors B Y K ATHERINE B AICKER Dartmouth College and A MITABH C HANDRA Harvard University I ncreases in medical malpractice premiums and malpractice awards to plaintiffs have received considerable attention in recent years Noting the substantial growth in medical malpractice premiums in certain states the American Medical Association has declared 19 states to be in full blown medical liability crisis and advocates tort reform to limit medical malpractice damages Congressional leaders and the Bush administration have echoed those concerns in calls for federal limits on malpractice awards The growth of medical malpractice liability costs has the potential to affect the delivery of health care in the United States in several ways First if growth in malpractice payments results in higher malpractice insurance premiums for physicians those premiums along with the costs of litigation may affect the size and composition of the physician workforce through their location retirement specialization and initial career choices Second the growth of potential losses from malpractice liability might encourage physicians to practice defensive medicine ordering more tests and performing more procedures in order to reduce their malpractice exposure Defensive medicine could also cause a Katherine Baicker is associate professor of economics at Dartmouth College senior research associate at Dartmouth Medical School and an NBER faculty research fellow She may be contacted by e mail at katherine baicker dartmouth edu Amitabh Chandra is assistant professor of economics at the Kennedy School of Government at Harvard University senior research associate at Dartmouth Medical School and an NBER faculty research fellow He may be contacted by e mail at amitabh chandra harvard edu 24 R EG U L AT IO N F A L L 2 0 0 5 reduction in care rising malpractice liability could discourage physicians from accepting certain high risk or uninsured patients Physicians may believe that the compensation for treating such patients is insufficient to offset the potentially much larger costs of being sued for malpractice Third to the extent that the growth of malpractice premium costs is passed on to patients through higher health insurance premiums increases in malpractice liability could affect health insurance coverage and employment Because most Americans receive health insurance through their employer an increase in an employer s health care bill may result in a decline in other forms of compensation such as wages or benefits or a reduction in employment for those workers for whom compensation adjustments are infeasible such as those near the minimum wage E VA L U AT I N G T H E E F F E C T S Those concerns prompt us to ask four questions Are increases in medical malpractice payments responsible for increases in physicians malpractice premiums Do increases in malpractice liability drive physicians to close their practices Do increases in malpractice liability change the way medicine is practiced by increasing the use of certain procedures Do increases affect access to health insurance We seek to answer those questions by examining differences between states and over time in malpractice payments MORGAN BALLARD R EG U L AT IO N F A L L 2 0 0 5 25 H E A LT H M E D I C I N E TA B L E 1 Summary Statistics 1993 2001 in 2000 dollars Level in 2001 Medical Malpractice Premiums Average 28 374 Surgery 34 360 Ob Gyn 52 374 Medical Malpractice Payments dollars per capita All 13 5 Surgery 3 4 Ob Gyn 1 9 MDs per 10 000 pop Total 25 3 Rural 1 3 Surgery 5 4 Ob Gyn 1 3 Medicare Expenditures per enrollee Total 6 533 Physician allowed Part B charges 2 168 Imaging 261 Major Procedures 67 Growth 1993 2001 10 7 17 3 2 3 27 5 36 0 34 5 14 2 0 0 1 8 5 8 34 7 30 8 64 2 12 0 Notes Summary statistics are weighted by population in 2001 Observations are at the state year level with percent growth calculated for 1993 2001 Payment data are three year averages for 1992 1994 and 2000 2002 Premium data are two year averages for 1992 1993 and 2001 2002 Physician data for 1993 are interpolated using 1989 and 1995 observations Treatments are calculated from 1992 1993 data and 1998 2001 data Physician data come from the Area Resource File based on the AMA Master file Premiums come from the Medical Liability Monitor Payments come from the National Practitioner Data Bank Covariates come from the Area Resource File Treatment rates and Medicare expenditures come from the Dartmouth Atlas of Health Care and other treatments including monitoring equipment intravenous and blood and all others all at the state year level converted to year 2000 dollars using the Consumer Price Index Table 1 shows the growth of per capita malpractice payments at the state level between 1993 and 2001 There is substantial variability of payments and payment growth between states For example over the 2001 03 period per capita payments were highest in the states of New York Pennsylvania New Jersey Connecticut West Virginia and Delaware In those states the burden of malpractice liability was almost twice the U S average of 13 50 per person Judgments awarded by juries are a tiny fraction of total payments with the bulk of payments comprised of settlements Changes in large jury awards do not seem to have directly caused any increase in total payments We use data on malpractice insurance premiums from an annual survey conducted by the Medical Liability Monitor mlm Every year since 1991 the mlm has conducted a nationwide survey of physician malpractice insurance premiums for policies offering 1 million in coverage for a claim 3 million in total coverage for a year The mlm provides premium data for internal medicine general surgery and obstetrics gynecology by state Here too we calculate average premiums by specialty and state for 1993 and 2001 again deflated to real 2000 dollars using the cpi PREMIUMS Data on the number of physicians by specialty and age come from the 2003 Area Resource File arf published by the National Center for Health Workforce Analysis The arf gathers information from the ama Physician Master File and the County Hospital File and is reported at the county level Data from the county level are summed into state measures For each state per capita work PHYSICIAN WORKFORCE and premiums the physician workforce the use of and
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