The Impact of Malpractice Reforms on the Supply of

Physician Services

David Becker, UC-Berkeley

Daniel Kessler, Stanford GSBWilliam Sage, Columbia Law School

Outline

• Introduction

• Models

• Data

• Results

• Discussion

Introduction

• “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.

Introduction

• 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.

Models

• We model the number of active physicians in state s in year t (Nst) as a function of:– State- and year-fixed effects (αs and 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:

1) 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.

2) Short-run and long-run effects of tort reform. 3) Effects of reforms in high- versus low-managed

care states. 4) Decomposition of net effect of reform into

entry/retirement and moves.

Data

• 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.

Results

Table 1: Number of physicians in states adopting and not adopting direct reforms, 1985 and 1995 All Physicians, physicians in nongroup practices, and physicians with 20 or more years of experience 1985 1995 states not States states not States non-adopting adopting difference adopting direct Adopting direct adopting direct adopting direct states states in reforms reforms reforms Reforms % change % change % change

(1) (2) (3) (4) (5) (6) (7) All Physicians All Physicians 234,149 133,544 313,215 191,108 33.8% 43.1% 9.3% Emergency medicine 6,110 3,374 10,162 5,995 66.3% 77.7% 11.4% OB/GYN 15,495 8,981 20,180 12,007 30.2% 33.7% 3.5% Anesthesiology 10,392 6,040 16,569 10,063 59.4% 66.6% 7.2% Radiology 11,081 6.424 14,296 8.539 29.0% 32.9% 3.9% Surgery 44,606 26,498 52,155 32,392 16.9% 22.2% 5.3% Physicians in non-group practices All Physicians 171,734 99,061 203,494 123,298 18.5% 24.5% 6.0% Emergency medicine 3,714 2,104 5,178 3,097 39.4% 47.2% 7.8% OB/GYN 12,738 7,429 14,670 8,836 15.2% 18.9% 3.8% Anesthesiology 7,516 4,390 9,397 5,739 25.0% 30.7% 5.7% Radiology 7,308 4,432 8.424 5,136 15.3% 15.9% 0.6% Surgery 36,308 21,591 38,410 23,530 5.8% 9.0% 3.2% Physicians with 20+ years experience All Physicians 94,113 46,457 121,341 66,725 28.9% 43.6% 14.7% Emergency medicine 825 407 2,091 1,062 153.5% 160.9% 7.5% OB/GYN 6,500 3,374 7,981 4,487 22.8% 33.0% 10.2% Anesthesiology 3,296 1,611 4,391 2,424 33.2% 50.5% 17.2% Radiology 3,799 1,949 5,868 3,199 54.5% 64.1% 9.7% Surgery 19,452 10,080 24,153 14,116 24.2% 40.0% 15.9%

Table 2: Effect of state tort reforms and managed care enrollment on physician supply, 1985-1995

Full Sample Nongroup

only <20 yrs exp >= 20 yrs exp

(1) (2) (3) (4)

Difference-in-difference effects of reforms Direct reforms 2.56 3.53 2.68 2.25 (0.29) (0.42) (0.36) (0.49) Indirect reforms -1.25 -1.42 -3.35 2.28 (0.32) (0.45) (0.40) (0.52) High managed 0.20 2.36 -0.99 2.37 care enrollment (0.25) (0.35) (0.31) (0.41)

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.

Limitations

• 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.