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The Effects of Malpractice on Medical Specialties

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The Park Place Economist Volume X36The Effects of Malpractice on MedicalSpecialtiesMindy MannleinI. IntroductionTort law refers to the set of legal rules andpractices that govern wrongful injuries to persons orproperty (Culyer & Newhouse, 2000). In todayshigh-tech, fast-paced world, the use of the law as aresource for blame and compensation is highly uti-lized. One of the best demonstrations of this mental-ity is the reaction of the American people to the ter-rorist attacks of September 11, 2001. For instance,in Florida, two men filed a $1.1 trillion lawsuit againstOsama bin Laden, claiming that his terrorist acts havethreatened them with personal injury and forced themto re-fortify their bomb shelters. Additionally, theyaccuse bin Laden of causing them to suffer from highblood pressure and stomachdisorders, though they ac-knowledge that it is highlyunlikely that he will actuallyshow up in court (Bin LadenLawsuit, 2001). Moreover,the wife of a man who per-ished in the September 11 at-tack on the World TradeCenter is suing bin Laden andthe Taliban for at least $5 million in a wrongful deathlawsuit (McKay, 2001). Perhaps more than the bombraids and other acts of retaliation by the US military,bin Laden should fear the onslaught of lawsuits - orperhaps not.Regardless, the increased volume and severityof tort litigation is a topic of concern for economistsbecause it means that vast amounts of wealth are be-ing tied up in transfer activity. In a study by Lab andand Sophocleus (1992) on resource investment intransfer activity in the US for 1985, it was found thattransfer seeking constitutes a significant fraction, atleast 11%, of all economic activity conducted in theUS. Therefore, they suspect that in the absence ofsuch investment, the rate of economic growth experi-enced in the late 1980s would have been substan-tially higher. For instance, the cost of tort litigation in1985 was $17,350,000,000. In other words, roughly$17 billion could have been employed in productiveventures or in leisure but was instead removed fromthe production possibilities of the economy. More-over, that figure is quite dated and is therefore notnearly representative of the total expenditure on tortlaw today.Looking at a specific field of tort litigation, thefrequency and severity of malpractice claims have risendramatically since the late 1960s, leading to whatsome refer to as the malprac-tice insurance crisis. For in-stance, from 1975 to 1984,claims per physician rose anaverage of 10% annually, andbetween 1982 and 1986,claim frequency per 100 phy-sicians rose from 13.5 to 17.2a year (Danzon, Pauly, &Kington, 1990). Additionally,awards for medical malpractice cases have risen,nearly doubling between 1985 and 1995, from$211,711 to $398,426 (Medical MalpracticeAwards, 1997). This trend in the increased fre-quency of claims and higher awards is reflected inhigher insurance premiums for doctors.Therefore, I am concentrating my project on theeffects of the growth of medical malpractice suits.One of the main goals of the medical malpractice sys-tem is to provide incentives for physicians to takeappropriate precautions in medical treatment. How-ever, I would like to explore whether increased mal-practice activity has adversely affected the medicalThe increased volume and se-verity of tort litigatioin is a topicof concern for economists be-cause it means that vastamounts of wealth are beingtied up in transfer activity.37The Effects of Malpractice on Medical SpecialtiesThe Park Place Economist Volume Xlabor market, particularly in regards to the specialtiesthat doctors are choosing to enter. How reactive aredoctors to the fear of litigation and financial pressureof rising insurance premiums? Are doctors in certainspecialties more reactive to these stimuli than otherdoctors?Thus, the main goal of this paper is to examinethe effects of malpractice on certain medical special-ties to determine if it is acting as a supply shock in themedical labor market. Accordingly, Section II evalu-ates the existing literature relating to medical malprac-tice, while Section III introduces the theoretical frame-work behind medical malpractice and liability in gen-eral. Section IV then presents the empirical model,followed by Section V which discusses the results ofthe model. Finally, Section VI draws conclusions fromthe results in Section V and proposes future ideas forresearch.II. Literature ReviewThis section looks at three studies. First, Kesslerand McClellan (1997) examine the relationship be-tween liability reforms, malpractice pressure, and phy-sician perceptions of medical care. They find thatphysicians, especially those that have been recentlyor frequently sued, most definitely change their prac-tices. In the context of their study, a change in prac-tice means the use of defensive medicine, or per-forming extensive, unnecessary testing as protectionagainst malpractice claims. Thus, the important find-ing of this study is the proof that malpractice has al-tered physician behavior. Therefore, it opens thepossibility that malpractice could also alter physicianschoice of specialty, as I hypothesize.In another study, Kletke (2000) projects the sizeand demographic composition of the US physicianworkforce until the year 2020. He finds that an ag-gregate increase in the physician supply from 1998 to2020 is likely but with a decreasing annual net in-crease. Furthermore, the percent of physicians choos-ing to go into primary care specialties, which havelower malpractice insurance premiums, will rise, whileother specialties will decline. Perhaps malpractice isa key player in this projected change in workforcecomposition. There are other possible explanationsfor this increase in primary physicians, such as theincrease in the number of HMOs. However, as of1998, only 2.1 percent of doctors were general prac-titioners, and of that 2.1 percent only a small percentparticipated in HMOs (Pasko, Seidman, & Birkhead,2000). Thus, HMOs will not likely have a significantimpact on this area.Finally, Danzon, Pauly, and Kington (1990) studythe effects of medical malpractice on rising healthcarecosts. Their study finds evidence from 1976-1983suggesting that increased medical malpractice costsreflected in greater insurance costs were being passedon rapidly to patients through higher fees, with littleimpact on physician net incomes. However, they alsoemphasize that their conclusions


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