Damage Caps and Defensive Medicine: Reexamination with Patient-Level Data

Physicians often claim that they practice “defensive medicine,” including ordering extra imaging and laboratory tests, due to fear of malpractice liability. Caps on noneconomic damages are the principal proposed remedy. Do these caps in fact reduce testing, overall health-care spending, or both? We study the effects of “third-wave” damage caps, adopted in the 2000s, on specific areas that are expected to be sensitive to med mal risk: imaging rates, cardiac interventions, and lab and radiology spending, using patient-level data, with extensive fixed effects and patient-level covariates. We find heterogeneous effects. Rates for the principal imaging tests rise, as does Medicare Part B spending on laboratory and radiology tests. In contrast, cardiac intervention rates (left-heart catheterization, stenting, and bypass surgery) do not rise (and likely fall). We find some evidence that overall Medicare Part B rises, but variable results for Part A spending. We find no evidence that caps affect mortality.